Auto insurance changes: New law rolls back coverage limits and prevents stacking

Beginning Nov. 1, 2011, mandatory auto insurance limits will be cut in half, and drivers will not be required to maintain underinsured motorist coverage. In addition, insurance carriers will be able to prevent insureds from stacking coverage amounts that cover multiple vehicles.

By Joe Forward, Legal Writer, State Bar of Wisconsin

April 20, 2011 – Gov. Scott Walker signed legislation April 12 that rolls back minimum automobile insurance coverage limits to pre-2010 levels and prevents policy holders with more than one automobile from stacking policies for increased insurance coverage.

2011 Wisconsin Act 14 repeals many of the auto insurance laws established by the 2009-11 biennial state budget (2009 Wisconsin Act 28) under Gov. Jim Doyle. Act 14 takes effect Nov. 1, 2011, and applies to policies that are new or renewed after the effective date.

Walker said the new law will make it more affordable to have car insurance and sends a message to consumers and employers that Wisconsin is a good place for business.

The argumentsThe new law still mandates insurance coverage for Wisconsin drivers, but mandated coverage limits will essentially be cut in half. For instance, current law requires drivers to carry liability limits of $50,000 per person and $100,000 per accident. The new law mandates that insured’s carry at least $25,000 per person and $50,000 per accident.

In addition, the new law won’t allow insureds to stack policies on multiple vehicles for increased coverage in the event that limits on one policy are insufficient to cover damages.

The State Bar of Wisconsin’s Board of Governors has a long-standing public policy position supporting the ability to stack policies, based on a belief that antistacking laws “work against the consumer by limiting coverage while providing no visible reduction in premiums.”

In testimony, proponents of the new law, including Robert Passmore of Property Casualty Insurers Association of America, argued that Act 14’s provisions restore minimum limits to prior levels and “help to temper loss costs that ultimately drive auto insurance premiums.”

Passmore argued to members of Senate and Assembly insurance committees that under Act 28, “Wisconsin drivers lost much of their ability to choose the amount of coverage that suits their needs and finances, and were set up for future increases in their insurance costs. …” Passmore said more people will carry auto insurance if made more affordable to do so.

Others, like attorney Edward Vopel, on behalf of the Wisconsin Association for Justice, questioned the wisdom of rolling back limits and preventing families from stacking policies.

“As someone who represents people injured in automobile accidents, it is clear that when people are denied auto insurance coverage, do not have insurance or carry insufficient insurance, the costs are passed on to others, including state taxpayers,” Vopel said.

WAJ President and attorney Michael End says that consumers will have less protection than what they pay for under the new law, which could leave many people “inadequately compensated for their injuries.”

The following provides an overview of the major changes to auto policy insurance coverage under Act 14:

Minimum limit requirements reducedIn 2010, Wisconsin became the 48th state to require that drivers obtain an auto insurance policy, and raised minimum coverage limits for the first time in more than 25 years.

Under current law, a person involved in an auto accident must provide proof of financial responsibility (insurance) at levels of $50,000 for bodily injury or death of one person, $100,000 for bodily injury or death of more than one person, and $15,000 for property damage.

The new law still requires drivers to carry auto insurance, but rolls back the minimum liability amount required to $25,000 for bodily injury or death of one person, $50,000 for bodily injury or death of more than one person, and $10,000 for property damage.

Underinsured motorist coverageCurrent law requires policies to cover situations in which bodily injury liability policy limits are less than the amount needed to fully compensate the insured for his or her damages. Current law requires a coverage limit of $100,000 per person and $300,000 per accident.

Under the new law, drivers are not required to carry underinsured motorist coverage. Insurers must offer it, but a driver can reject it. If a driver accepts coverage, the minimum underinsured amount required is reduced to $50,000 per person and $100,000 per accident.

In addition, the new law leaves the term “underinsured motorist” undefined so individual insurance policies can define when underinsured motorist coverage applies.

Uninsured motorist coverageUnder current law, drivers must carry uninsured motorist coverage for situations in which an insured motor vehicle is involved in an accident with a person who does not have auto insurance, or if a vehicle or person is damaged from a hit-and-run. The current level of coverage required is $100,000 per person, $300,000 per accident, and $10,000 for medical payments.

The new law still mandates uninsured motorist coverage, but at lower minimum limits of $25,000 per person, $50,000 per accident, and $1,000 for medical payments (optional).

Under the new law, “uninsured motor vehicles” include “phantom vehicles” that make no physical contact with the insured or with a vehicle the insured is occupying and the identity of the operator and owner cannot be ascertained.

Application of this provision requires the insured to corroborate the facts of the accident by competent evidence provided by someone other than the insured, and requires the insured or someone on the insured’s behalf to report the accident to police within 72 hours.

The insured must also file with the insurer a statement under oath that the insured or a legal representative has a cause of action arising out of the accident within 30 days of the accident.

Reducing clauses and antistackingCurrent law prohibits insurance companies from inserting reducing clauses that reduce payouts based on other sources of compensation, such as worker’s compensation and disability insurance. The new law allows policies to include so-called “reducing clauses.”

Specifically, the new law allows policies to limit uninsured and underinsured motorist coverage by amounts paid by any person or organization that may be legally responsible for the bodily injury or death, and amounts paid under worker's compensation or disability benefits.

Vopel, representing the Wisconsin Association for Justice, argued that insurance companies “should not be able to use a variety of anti-consumer policies to pass on the financial responsibility to health insurers and taxpayers.”

But Passmore of Property Casualty Insurers Association said that unless reducing clauses are reinstated, Wisconsin’s uninsured and underinsured losses “can reasonably be expected to rise significantly.”

Proponents and opponents also testified about the impact of reinstating provisions that allow insurance policies to prohibit policy stacking. Currently, drivers with policies on more than one vehicle can stack coverage to double or triple insurance coverage amounts.

The new law allows policies to include antistacking provisions that limit the number of motor vehicles for which coverage limits may be added. Specifically, the new law lets insurers set the maximum amount of uninsured or underinsured motorist coverage for any vehicle.

Vopel said stacking “simply allows families to get what they purchased,” but proponents argued that stacking is just another increase in mandated limits.

Finally, the new law repeals section 632.355, a provision that prevents insurance carriers from placing consumers in a high-risk category on the basis that the applicant or insured has not previously had motor vehicle insurance. The treatment of section 632.355 first applies to motor vehicle insurance policies that are newly issued as of Nov. 1, 2011.

Other provisionsThe new law eliminates the current requirement that insurers that write umbrella policies make a written offer of uninsured and underinsured motorist coverage and a requirement that courts reform policies to include excess coverage if the offer is not made.

Further, the new law excludes “commercial liability policies” from the mandatory coverage and limit requirements. A commercial liability policy is defined as one “that is intended principally to provide primary coverage from the insured’s general liability arising out of its business or other commercial activities, and that includes coverage for the insured’s liability arising out of the ownership, maintenance, or use of a motor vehicle as only one component of the policy or as coverage that is only incidental to the principal purpose of the policy.”

The new law first applies to motor vehicle insurance policies that are newly issued or renewed on the law’s effective date, which is Nov. 1, 2011.

Liability coverageCurrent law: Drivers must obtain liability coverage of $50,000 per person, $100,000 for more than one person, and $15,000 for property damage.New Law: Drivers must obtain must obtain liability coverage of $25,000 per person, $50,000 for more than one person, and $10,000 for property damage.

Underinsured motorist coverageCurrent law: Drivers must obtain underinsured coverage of $100,000 per person, and $300,000 per accident for more than one person.New Law: Drivers are not required to carry underinsured motorist coverage. But if they do, they must obtain coverage of at least $50,000 per person, and $100,000 per accident.

Uninsured motorist coverageCurrent law: Drivers must obtain uninsured coverage of $100,000 per person, and $300,000 per accident, and $10,000 for medical payments.New Law: Drivers must obtain uninsured motorist coverage of at least $25,000 per person and $50,000 per accident. Coverage for medical payments is optional but must cover at least $1,000.